European markets end lower but FTSE bucks the trend

A stronger euro left European markets flagging, not helped by the continuing concerns about the stand-off between the Spanish government and Catalonia’s independence promoters. But with the pound suffering amid the latest political uncertainties in the wake of the Tory party conference, the FTSE 100 managed to edge higher by the end of trading, with its overseas earners benefitting from the prospect of a weaker sterling.

A mixed bag for the US, with an unexpected fall in jobs balanced by a rise in wage growth, left Wall Street slipping back from record highs. The final scores in Europe showed:

The FTSE 100 finished up 14.88 points or 0.2% at 7522.87

Germany’s Dax dipped 0.09% to 12,955.94

France’s Cac closed 0.36% lower at 5359.90

Italy’s FTSE MIB fell 0.77% to 22,392.31

Spain’s Ibex ended 0.29% lower at 10,185.5

But in Greece, the Athens market added 0.10% to 745.55

On Wall Street, the Dow Jones Industrial Average is currently down 27 points or 0.12%.

On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back on Monday.

Oil price drops 3%

A mixture of profit taking and concerns about oversupply have brought a rally in the oil price to an abrupt end.

Hopes that producers would extend their agreement to cap output and reduce a supply glut have supported crude prices recently. But they have slipped back after Russia clarified that President Putin had not, as suggested, proposed extending the production cut agreement although he thought it was a possibility. Saudi Arabia’s energy minister also sounded lukewarm about an extension until the end of 2018, saying he was “flexible” about it.

Rising US crude exports have also been taken as a negative factor, along with the re-opening of Libya’s largest oil field. The approach of tropical storm Nate to the US Gulf coast is not helping matters either.

So Brent crude is currently down 2.7% at $55.42 a barrel while West Texas Intermediate - the US benchmark - has fallen 3.25% to $49.14.

The pound continues to flounder against the dollar, both on worries about the political situation in the UK and of course, the strength of the US currency as the likelihood of a Federal Reserve interest rate rise in December increases. At the moment the pound is down 0.53% at $1.3047, albeit off its worst levels. Connor Campbell. financial analyst at Spreadex, said:

Friday’s US non-farm jobs report only made the week worse for cable, despite a rather unpleasant headline figure.

The non-farm number itself was as ugly as they come. For the first time in 7 years the reading came in negative, at -33k against the 82k forecast and the (upwards revised) 169k seen in August. Yet while the figure was far worse than expected, it actually wasn’t that surprising given it covered a period impacted by Hurricanes Irma and Harvey.

Instead of lingering on the shrinking non-farm payrolls, investors’ attention turned to rest of the jobs report. Wage growth jumped significantly month-on-month, from 0.2% to 0.5%, while the unemployment rate hit a fresh 16 year low of 4.2%. It’s not a stretch to see those numbers as tipping the Fed’s dovish/hawkish scales towards the latter, with a December rate hike now coming into sharper focus.

The dollar reacted as one would expect, widening its gains against the pound.., while taking 0.1% off the euro and half a percent off the yen...

And what of poor, fragile sterling? Well September’s super surge is looking more and more like an anomaly, the Tories once again finding a way to undermine confidence in the currency. Cable’s stuck at a sub-$1.305 one month nadir, while against the euro the pound has cemented a fresh 3 week low after falling half a percent. And the thing is, there is no guarantee that next week will be any better, especially if the weekend papers are as filled with Tory infighting as one would expect.

The US jobs market stalled in September, losing 33,000 jobs, as Hurricanes Harvey and Irma took their toll. It was the first time in seven years that the US monthly total had recorded a fall.

The US economy had added an average of 176,000 new jobs a month so far this year but as the labor department had predicted the storms, which caused fatal and catastrophic damage across Texas and Florida, slowed hiring.

But a loss in jobs was far worse than the 80,000 new jobs most US economists had expected would be created. It ends the longest stretch of uninterrupted jobs growth in US history. This was the first loss in jobs since September 2010.

Ahead of Friday’s jobs report the Bureau of Labor Statistics said some 11.2 million workers lived in the affected areas, about 7.7% of the US workforce.

Employment in food services and drinking places declined by 105,000 in September. That sector has added an average of 24,000 jobs a month over the past 12 months.

The unemployment rate, which was 4.4% in August, fell to 4.2%, a 16-year low.

This is the second month of disappointing growth in the US jobs market. In August the economy added 156,000 new jobs, below the 180,000 that had been expected by economists.

The full story is here:

US loses jobs for first time in seven years as hurricanes buffet market

Wall Street opens lower

After their recent record breaking runs, US markets have paused for breath.

Despite the weaker headline jobs figure, the dollar has strengthened on the basis that higher than expected wages growth means the Federal Reserve may well raise interest rates before the end of the year. In turn, that has put a small dampener on equities.

So the Dow Jones Industrial Average is down 21 points or 0.09% while the S&P 500 opened 0.2% lower and the Nasdaq Composite dipped 0.25%.

The dollar has moved higher following the US jobs data, despite a fall in the headline figure. Analysts point to the strong pay growth giving the Federal Reserve leeway to raise rates in December.

So sterling has hit a four week low against the dollar, while the US currency was at its strongest level against the euro since mid-August. Against the yen, the greenback hit its highest since mid-July. James Knightley, chief international economist at ING Bank, said:

Hurricane disruption dragged payrolls negative, but a big fall in unemployment and significant wage increases make a December rate hike look probable...

Despite the softness in payrolls the unemployment rate fell to 4.2% from 4.4%. The other big number is the 0.5% month on month jump in wages – the biggest increase since November 2008 – which takes the annual wage growth number up to 2.9%. Note that there were also some upward revisions to monthly wage rates so we may finally be seeing some of the strength in jobs feeding through into inflation pressures.

Payrolls will bounce back strongly given the Bureau for Labour Statistics suggests that 1.47mn people were unable to get to work because of storm disruption. Moreover, labour demand indicators remain strong in other reports.

This positive overall story on the labour market is only going to strengthen the case for higher interest rates. We already know that the growth outlook is strong – underlined by the ISM manufacturing and non-manufacturing surveys hitting 13 and 12 year highs respectively this week – and inflation is heading back towards target – next week’s headline CPI expected at 2.1% and core at 1.8% year on year.

The arguments justifying higher interest rates is also being broadened with Fed Chair Yellen suggesting “persistently easy monetary policy” could have “adverse implications for financial stability”, while warning of “somewhat rich” asset valuations. Relatively loose financial conditions – a flat yield curve and dollar weakness - have been used as arguments that could justify action by other Fed officials. It therefore seems that the main risk to our December rate hike call is politics and the potential for an economically and market disruptive government shutdown. However, we remain hopeful that this can be avoided clearing the way for another two rate hikes in 2018.

Manuel Ortiz-Olave, market analyst at Monex Europe, said:

Headline job creation had a rough time in September. Although a significant slowdown was expected after the summer’s tropical storms, not many forecasts were expecting to see a contraction. The most important surprise, however, comes from a significant increase in wage growth and a new drop in the unemployment rate to fresh 16-year lows.

Wage growth has been the last piece of the inflation puzzle for the Federal Reserve over the last several quarters, as it remained stubbornly low despite a strong economic recovery and continued new lows in the unemployment rate. Albeit late, wage growth finally made an appearance in September with a massive increase well above expectations. Despite the contraction in employment, the three-month average of headline job creation remains above 100.000 jobs/month, which will not discourage the Fed from a hike.

There can be no more doubt, the Federal Reserve will hike interest rates before year end as already strong data now has the support of the Fed’s “prodigal son”: wage growth. This suggests the economy will grow at a strong pace in the last quarter of the year.